There is no question that your credit rating takes a hit if you foreclose on your home. Late mortgage payments, short sales and deeds in lieu also make a negative impact. If you are experiencing hard economic times and are faced with the reality of one of these options, take heart that the damage is not permanent. With time and patience, you can rebuild your credit rating. We summarize below the ways that foreclosure, short sales, deeds in lieu and late mortgage payments affect your credit rating and how you can repair the damage.
Foreclosure. Your credit score can drop by as much as 200 to 300 points if you are forced to give your home up to foreclosure. This drop carries with it a ripple effect that impacts your ability to purchase a new home and obtain car loans, credit cards, even insurance. Are you looking for a new job? Then be aware that some prospective employers refer to credit scores as an indication of personal responsibility. You may be passed over if employers perceive you as untrustworthy based on your financial history. All is not lost, however, if you keep your other financial obligations in good standing. Foreclosure can remain on your credit report for as long as seven years, but its effect will diminish over time, perhaps in as little as two years, if you keep other credit balances low and make all your payments on time.
Short sales and deeds in lieu. FICO, the most popular credit scoring model in the United States, conducted a study of the impact of foreclosures, short sales and deeds in lieu on credit scores. It found that short sales and deeds in lieu affect credit scores as negatively as foreclosures. Since these options also represent a mortgage loan default, any lenders you may wish to do business with in the future could judge a short sale or deed in lieu as equally damaging evidence of your inability to pay your debts. However, some may consider a past short sale more favorably than a foreclosure; it all depends on the lender.
Late payments. Late mortgage payments (even one month’s worth) reflect a homeowner’s ability to pay debts. FICO’s study shows that being only 30 days late on your mortgage payment triggers a significant drop in your credit score. You should contact your lender immediately to work out an alternate schedule if you expect to miss a payment.
The impact of a foreclosure, short sale or deed in lieu could be less severe if your current mortgage lender does not report a deficiency balance on your loan to credit reporting agencies. (A deficiency is the difference between your unpaid mortgage balance and the proceeds from a foreclosure, short sale or deed in lieu.) However, it will take time to recover completely from any of these options whether or not a deficiency appears on your credit
Roman Lopez is the owner of The Roman Lopez Real Estate Team, a full service real estate company specializing in Greater Austin home sales, purchases, and investments properties.
Roman has worked and excelled in the real estate business in Austin, TX for the last 7 years. Roman's real estate career started in 2008 where he was named Rookie of the Year for the KB Home Central Texas Division.
After a successful career with KB Home, Roman obtained his real estate licence and joined Keller Williams Realty where he again rose to the top and won Rookie of the Year for Keller Williams Austin.
After a year as a solo agent he built a team of top producing agent, The Roman Lopez Real Estate Team. His team now ranks as one of Keller Williams top teams closing over 200+ residential sales transactions per year.
Roman's designations include: Certified Negotiation Expert, Certified Distressed Property Expert, Certified International Property Expert, Certified International Property Expert, and Global Property Specialist.
Roman's Awards: Keller Williams Austin Rookie of the Year 2011, 2008 KB Home Rookie of the Year Central Texas Division, 2015 Platinum Top 50 Winner, Platinum Top 50 Finalist, 2014 NAHREP Top 250 Latino Agent in the US, 2014 NAHREP Top 20 Latino Agent in Austin, 32015 NAHREP Top 250 Latino Agent in the US, 2015 NAHREP Top 20 Latino Agent in Austin, 2015 Best of Angie's List, 2015 Real Trends Best Real Estate Agents, 2014 Best of Trulia Best Real Estate Agents
If it's your first time buying or selling real estate, you don't know
"Yasmin Hashim and Roman Lopez were really helpful for my condo! I bought the condo half a year ago from Yasmin, and she was really nice and answered all my questions, and the price was really good because of her . Half a year later, she introduced me to her team leader Roman Lopez when I had some questions about the selling condo. Mr. Lopez was very patient, we set up a free consultation. He provided several options and each of them was very decent. I decided to rent my place for a little bit, but I will definitely ask for their help when I sell the property."